Domo's Q3 2026: Contradictions Emerge on Billings, Sales Productivity, AI Strategy, Consumption-Based Pricing, and Growth Investments

Business Commentary:

* Financial Performance and Cash Flow: - Domo, Inc. reported positive adjusted free cash flow of $2.1 million for Q3, marking a $15.8 million improvement over the previous year. - The company also posted an operating margin of 6.8%, surpassing guidance and putting them on track for the highest full-year operating margin ever. - The improvement was driven by deepening partnerships, accelerating consumption model adoption, and significant AI integration leading to increased customer engagement.

• Consumption Model Transition:
• Over 80% of Domo's annual recurring revenue is now on consumption contracts, a significant shift from single-digit percentages just a couple of years ago.
• Monthly unique users across Domo's customer base increased over 10% year-over-year, reflecting the growing momentum and benefits of full platform access.
• This shift in pricing and access has led to accelerated adoption and deeper customer success, contributing to positive economic outcomes for Domo.

• AI Integration and Adoption:
• The number of unique accounts using Domo's AI features increased over 60% year-on-year, with unique users more than doubling.
• This adoption is evidence that Domo's integrated platform is enabling real AI use cases, resulting in meaningful ROI and customer transformation.
• Investments in AI capabilities are enhancing customer value, leading to more comprehensive data and decision-making processes.

• Ecosystem and Partnership Growth:
• More than 350 accounts are actively using Domo's Cloud Amplifier, doubling year-over-year, with a 450% increase in unique users.
• This highlights Domo's strategic shift from competing against cloud data warehouses to complementing them, driving meaningful revenue for partners and enhancing customer value.
• The company is seeing increased interest from partners in OEM arrangements and strategic investments, reflecting the strength of Domo's integrated solutions.
  

Contradiction Point 1

Billings and Sales Productivity

It involves changes in the explanation of billings and sales productivity, which are critical metrics for investor expectations and financial forecasting.

Could you explain the Q3 negative billing variance and outline your recovery plan? Additionally, please detail the Q4 billing growth rebound targets? - James Wood (TD Cowen)

2026Q3: The ecosystem business impact is growing, causing sales cycles to be longer. It takes longer to close these deals due to more extensive involvement, but they have higher close rates and stickiness. Such shifts result in delayed billings, but they don't change the premise. - Joshua James(Founder, CEO & Director)

What drove the 6x increase in sales productivity? How is pipeline building related to Domopalooza, and how does it translate into Q2 and beyond? - Yi Fu Lee (Cantor Fitzgerald)

2026Q1: Our model change and focus on AI have boosted sales efficiency and productivity. We're seeing better close rates and retained customers, contributing to Q2 and fiscal 2026 growth. - Josh James (Founder & CEO)

Contradiction Point 2

Impact of AI on Business Strategy

It demonstrates a shift in the emphasis on AI initiatives and their impact on business strategy, which could influence the company's growth and competitive positioning.

How much leverage are you achieving with new partners via Snowflake insights? - Kincaid LaCorte (Citizens)

2026Q3: AI is a priority across the company, and we're excited about upcoming developments. - Joshua James(Founder, CEO & Director), Daren Thayne(CTO & Executive VP of Product)

How are AI trends affecting your business, and what strategic initiatives are you pursuing in AI? - Brett Huff (Stephens)

20251205-2026 Q3: We're focusing on AI to improve our products and customer experiences. Our Agentic platform shows strong adoption, and we're developing new features to enhance AI capabilities. - Joshua James (Founder and CEO), Daren Thayne (CTO)

Contradiction Point 3

Sales Cycle and Deal Timing

It involves changes in expectations regarding sales cycles and deal timing, which are critical for forecasting revenue and investor expectations.

Could you explain the Q3 negative billing surprise assessment and how you're recovering from it? Can you provide more details on the Q4 billing growth rebound targets? - James Wood (TD Cowen)

2026Q3: The ecosystem business impact is growing, causing sales cycles to be longer. It takes longer to close these deals due to more extensive involvement, but they have higher close rates and stickiness. - Joshua James(CEO)

How did Snowflake conference and go-to-market activities impact Q2 closed deals vs. forward pipeline growth? How do you assess the conversion potential of these pipelines? - James Derrick Wood (TD Cowen)

2026Q2: Leads from CDWs close at a higher rate than our own, indicating potential upside in future guidance. - Joshua G. James(CEO)

Contradiction Point 4

Consumption-Based Contracts and Pricing Strategy

It involves changes in the company's approach to consumption-based contracts and pricing strategy, potentially impacting revenue forecasts and customer retention.

Can you explain AI's current state and your strategic initiatives in AI? - Brett Huff (Stephens Inc.)

2026Q3: Our focus is aligning customer value with pricing. We help customers get more value from the platform and re-earn better pricing as consumption increases. - RJ Tracy (Chief Revenue Officer)

Are consumption-based cohorts more likely to adopt AI and new products than seat-based customers? - Eric Martinuzzi (Lake Street)

2026Q1: Consumption-based customers are more likely to adopt AI and new products due to fewer barriers, allowing them to try and implement new features easily. - RJ Tracy (Chief Revenue Officer)

Contradiction Point 5

Growth and Investment Strategy

It involves statements about the company's growth strategy and investment priorities, which are crucial for understanding financial and operational strategies.

Are there planned investments with a higher run rate in FY27 than FY26? - Eric Martinuzzi (Lake Street Capital Markets)

2026Q3: We may see higher investments, but also efficiencies from using AI internally. We aim to maintain our 5% and 5% profit margins while focusing on growth. - Tod Crane(CFO)

What factors are included in the 6% operating margin and billings growth assumption, and what drives them? - Brett Richard Huff (Stephens)

2026Q2: We find leverage in the model by aligning investments with strategic priorities. Growth drivers include improving retention from multiyear deals and consumption, as well as AI advancements and partner support. - Tod Crane(CFO)